Higher Education Tax Benefits

The federal government provides a number of different tax reductions (credits, deductions, and exemptions) to assist individuals and families in paying for a higher education. Generally, federal tax benefits are targeted to middle and upper-income individuals and families. In the case of tax credits and deductions, beneficiaries have their federal income taxes reduced in relation to tuition costs incurred that year, thereby indirectly lowering higher education costs. Federal education tax exemptions help boost the value of the savings individuals and families accumulate in special accounts to pay for higher education costs.


Higher Education Tax Credits

The two main higher education tax benefits for individuals are the Lifetime Learning Credit and the American Opportunity Credit. Individuals enrolled in post-secondary education can select one of the two credits to decrease their tax bill. Families or spouses can claim the credit if the relevant student qualifies as their dependent.

Tuition and Fees Deduction

A higher education tuition and fees tax deduction is available to individuals who do not use the Lifetime Learning or American Opportunity Credit. Unlike a tax credit, which reduces the amount of taxes owed, the tuition and fees deduction reduces taxable income.

Tax Free Savings Accounts

The federal government gives tax breaks to families or individuals that save money for the higher education costs of their children or other designated beneficiaries.